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Established in 2004, Pangolin Investment Management is a specialised fund management company dedicated to investing in Asia with a long-term, value approach. In the following interview, James Hay, Principal of Pangolin Investment Management, shares the fund strategy, portfolio diversification and its focus on the ringgit and Malaysia investment opportunities. James has 18 years' experience in Asian markets, as a broker with BZW and Kim Eng in London and with Arab-Malaysian, TA and Caspian in Malaysia. He has lived in Asia since 1993.

The fund was launched on 1 December 2004.

Can you briefly explain the strategy of the Pangolin Asia Fund and its geographical focus?

The fund is long only driven by individual company fundamentals. It does not focus on any one country but will invest in situations the manager feels comfortable with. I am familiar with investing in Hong Kong, Malaysia, Indonesia and Singapore and am relearning Thailand and the Philippines. However the fund can invest anywhere within a wide definition of Asia and will do so if it can find undervalued companies. Investments are chosen largely on the back of company visits.

The strategy is to buy and hold and reinvest dividends. The fund will not hedge or gear except in extreme circumstances. There will be no management of volatility and the intention is to make absolute returns over the long term.

What will be the focus of the fund in terms of sector and capitalisation, and what is the concentration of the portfolio like?

There is no focus in terms of sector or capitalisation. Investments are chosen purely on individual merit. The whole fund can be invested in one country or one sector. Up to 25% of the portfolio can be invested in the instruments of one issuer at the time of purchase although the portfolio is unlikely to be so concentrated. Often perceived value is to be found in smaller companies; therefore it is logical to expect a large proportion of the funds assets to be in smaller capitalised stocks.

Currently the portfolio is about 33% invested in three positions. This does not reflect bearishness but the inability to buy companies at decent levels largely caused by year-end window dressing, etc.

Tell us about your personal track record of investing in Malaysia.

From August 1998 till the end of October 2004, my personal portfolio of Malaysia stocks returned about 900%, using a focused bottom-up strategy.

In 1998 I took the view that foreign fears of political and economic meltdown were exaggerated. I was able to buy good companies ridiculously cheaply at that time. Even after the market had recovered there were still many pricing anomalies to be taken advantage of.

Will the Pangolin Asia Fund invest in the same fashion as you did personally?

Yes, except that there is a limit on concentration and as the fund size grows, liquidity may be an issue. Furthermore with Asia being back in vogue, it is harder to find obviously mispriced assets. In 1998 one could have bought any counter and made money. Now one has to work a bit harder.

The fund may close to new investors if I cannot find anything to buy at any particular point in time.

The fund has redemption penalties of 7%, 5% and 3% for the first three years. Why?

I wish to deter investors without a similar mindset. Short-term redemptions may affect the value of the fund if illiquid positions are liquidated too early. Investors need at least a three-year view with this fund.

There are plenty of alternative vehicles for investors wanting hedged or other strategies, so the message is, if you don't like the terms, don't invest.

How large is your team currently and are there plans to add to your team in the next six months?

I have recently recruited an analyst who will start soon. Both the fund and the management company are also supported by a strong team of directors.

Would you consider launching another fund or running managed accounts?

I have no plans for any other funds. I could only run managed accounts with the same redemption terms as the fund; otherwise it would be unfair on the fund's shareholders. Thus investors might as well come into the fund, unless the strategy is totally different.

What are your views on ringgit revaluation — will this follow the revaluation of the renminbi? What form will it take — basket or straight revaluation?

I think that policy makers in Asia are in love with easy money. Many businesses in Asia are politician-owned which also makes clear thinking that bit harder. There have been some influential calls for a free float in the Malaysian press but I would be surprised if Malaysia were to lead the way on this. If it were, then this would be very bullish for future policy direction.

What is your outlook on Malaysia for the next six months (specifically on export slowdown and if domestic demand can pick up the slack)?

I don't really care as I am buying individual companies, not the market.

How much assets do you currently have and what are your marketing travel plans? At what level are you looking to cap the fund at?

Currently the fund is tiny at just under US$2m, and some of that is mine. My travel plans are more associated with uncovering investments than finding investors. My cost structure is low so there is not a desperate requirement to grow the asset size. Having said that, I will probably do some marketing in the next couple of months.

The main problem is that the fund does not appeal to the mainstream investor; it is a rather niche product. There is little point in blindly knocking on 100 doors in the hope of finding investors who like my strategy, especially with the fund being so new. If people really want to invest they can always find me (via Eurekahedge's products).

There is no absolute level for capping the fund. It will be open when I can find things to buy and closed when I cannot.

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